Average Credit Card Processing Fees and Costs in 2021

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Visa and Mastercard just delivered some good news for U.S. merchants. For the second year in a row, the two largest payment networks have elected to delay an increase to their credit card processing fees.

Until their respective announcements, both payment networks planned to raise fees on certain types of transactions in April 2021. While the new fees haven’t been detailed, both payment networks were planning to charge more for online transactions.

Considering online spending has gone up significantly during the COVID-19 pandemic, that would have been a costly change for merchants and one that may have had businesses seething. (Especially as card issuers continue to encourage online credit card spending with tactics like rewards for streaming services and food delivery bonuses)

Most merchants need to accept credit card payments, which makes credit card processing fees like these a cost of doing business. For more on how much those costs can be, we’ve collected all the latest data.

Key findings

  • The typical credit card processing fee ranges from about 1.3% to 3.5%, plus the payment processor’s cut, which varies depending on the card processor and plan you choose.
  • To accept credit card payments, merchants must pay interchange fees, assessment fees, and processing fees. These fees go to the card’s issuing bank, the card’s payment network, and the payment processor.
  • Payment processing fees are the only negotiable credit card transaction fees.
  • American Express cards have the highest average fees, while Visa tends to be the lowest.
  • There are four types of pricing models that payment processors use: interchange-plus, flat rate, subscription, and tiered.

Average credit card processing fees: 1.3% to 3.5%

Credit card companies charge between approximately 1.3% and 3.5% of each credit card transaction in processing fees. The exact amount depends on the payment network (e.g., Visa, Mastercard, Discover, or American Express), the type of credit card, and the merchant category code (MCC) of the business.

Note that debit cards have a different pricing model, and they usually cost less for merchants. This is why you may only see a convenience fee for a credit card and not a debit card purchase.

Here are the average credit card processing fees for the four payment networks (also called “card networks”):

Payment network

Average credit card processing fees

Visa

1.29% + $0.05 to 2.54% + $0.10

Mastercard

1.29% + $0.05 to 2.64% + $0.10

Discover

1.48% + $0.05 to 2.53% + $0.10

American Express

1.58% + $0.10 to 3.45% + $0.10

Sources: Visa USA Interchange Reimbursement Fees published on July 17, 2020, Mastercard 2019-2020 U.S. Region Interchange Program and Rates, Wells Fargo Merchant Services Payment Network Pass-Through Fee Schedule, and Wells Fargo Payment Network Qualification Matrix effective Oct. 16, 2020.

Those ranges include the two types of fees that payment networks charge for each transaction: interchange fees and assessment fees. They don’t include payment processing fees, because fee structures vary considerably depending on the credit card processor you choose.

Now, let’s take a closer look at the fees that get taken out of every credit card transaction.

Types of credit card processing fees and costs

The two fees we looked at above, interchange fees and assessment fees, are non-negotiable. They’re often referred to as base costs or the discount rate. The payment network charges these fees on every transaction involving one of their cards. Here are where those fees go:

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Interchange fees

The bank that issues the credit card receives the interchange fee. For example, if you have a Chase credit card on the Visa payment network, Chase receives the interchange fees on your transactions.

Assessment fees

The payment network receives the assessment fee. In the example above, Visa would receive the assessment fee on every transaction where you used your Chase Visa card.

Payment processing fees

This is paid to the company that accepts the credit card payment and sends the transaction to the payment network, either through a physical card reader or an online payment gateway. Depending on the payment processing company, costs for this service could include any of the following:

  • A per-transaction fee
  • A monthly service fee
  • The price of the equipment used to process transactions

What makes Discover and American Express different

Discover and American Express do double duty, because they issue credit cards and operate their own payment networks. Their cards may not be accepted at quite as many businesses as those of Visa and Mastercard, but they do get to keep both the interchange and assessment fees, giving them a much larger cut of each transaction.

Average credit card interchange fees: 1.5% to 3.3%

Payment network

Interchange fee range

Visa

1.15% + $0.05 to 2.40% + $0.10

Mastercard

1.15% + $0.05 to 2.50% + $0.10

Discover

1.35% + $0.05 to 2.40% + $0.10

American Express

1.43% + $0.10 to 3.30% + $0.10

Sources: Visa USA Interchange Reimbursement Fees published on July 17, 2020, Mastercard 2019-2020 U.S. Region Interchange Program and Rates, and Wells Fargo Payment Network Qualification Matrix effective Oct. 16, 2020.

Note: These aren’t the highest and lowest interchange fees for each payment network. We’ve removed some of the outliers (like Discover’s 0.00% + $0.75 for credit payments on utility bills) to make the table better reflect the average fee range.

Visa credit card processing fees are the lowest overall, but Mastercard and Discover aren’t far behind, and they fall into similar fee ranges. For many merchants, processing fees will be almost the same whether the customer pays with a Visa, Mastercard, or Discover credit card.

American Express has consistently been the most expensive payment network, which is one reason why it’s accepted by fewer merchants. In 2018, American Express announced the largest drop in its fees in 20 years. That brought it more in line with other credit card networks, although it still charges the most on average.

What determines your interchange fees?

With each payment network, there are several factors that affect where your interchange fees fall within the ranges above. Here are the most significant:

  • Merchant category: Every merchant has a merchant category code (MCC) corresponding to its business type. Payment networks charge different interchange fees based on the business’s MCC. For example, a supermarket has different fees than a restaurant.
  • Type of credit card used: Networks have various types of cards with their own sets of benefits. Cards that offer more benefits, such as travel rewards or purchase protections, usually have higher interchange fees. A World Elite Mastercard will tend to have higher interchange fees than an Elite Mastercard, a Visa Signature Preferred Card usually has higher fees than a Visa Signature Card, and so on.
  • Processing method: Interchange fees can change based on whether the card was swiped/inserted (payments made through contactless credit cards are also grouped in this category for transaction fee purposes), keyed in, or not present (in the case of online or phone transactions). This is in part because the risk of fraud varies based on the processing method. Card-not-present (CNP) transactions carry a higher risk of fraud and/or chargebacks, and interchange fees are often higher on these transactions.

American Express also uses transaction amounts to determine its interchange fees, with higher-value transactions costing merchants less.

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How often do payment networks update their interchange fees?

Payment networks generally update their interchange fees on a yearly basis. This doesn’t mean they raise rates every year. As mentioned before, American Express lowered its credit card processing fees in 2018.

Visa and Mastercard have been planning to increase credit card fees for certain types of merchants. They’ve postponed this for two years in a row because of the COVID-19 pandemic. There were reports that both were considering an increase of 0.05% to 0.10% for online transactions. While that didn’t happen this year, it’s a significant change that we could see happen in 2022.

Although it may seem like the card networks benefit the most by raising fees, it’s actually the banks. Remember that interchange fees go to the bank that issues a credit card. The banks that partner with Visa and Mastercard to issue their credit cards are the ones that will collect those additional fees.

Average credit card assessment fees: around 0.14%

Visa

Mastercard

Discover

American Express

0.14%

0.1375% (for transactions under $1,000); 0.01% (for transactions of $1,000 or more)

0.13%

0.15%

Source: Wells Fargo Merchant Services Payment Network Pass-Through Fee Schedule.

The assessment fee is the payment network’s cut, and it’s a much smaller portion of each transaction.

American Express is once again the most expensive payment network, but this time around, Discover has the lowest rate, at least for transactions under $1,000. For transactions of $1,000 and over, Mastercard is the clear winner. That being said, the differences in assessment fees between each payment network are minuscule.

Credit card processing fees and costs

While merchants must pay the interchange and assessment fees set by the payment networks, they have more flexibility with payment processors.

Not only are there many credit card processors available, all with their own pricing strategies, but merchants may also be able to negotiate these rates.

The following types of payment processing models are available: interchange-plus, flat rate, subscription, and tiered. Here’s how each model works and the fees you’d pay with several popular payment processors.

Interchange-plus

Payment processor

Cost per swiped retail transaction

Cost per online transaction

Monthly fee

Helcim

Base costs + 0.30% + $0.08

Base costs + 0.50% + $0.25

$20

National Processing

Base costs + 0.18% + $0.10

Base costs + 0.29% + $0.15

$9.95

Payline

Base costs + 0.20% + $0.10

Base costs + 0.40% + $0.20

$10 (retail); $20 (online)

Sources: Helcim, National Processing, and Payline pricing pages.

The interchange-plus model keeps all your fees separate. The payment processor charges you exactly what the payment network charges on the transaction, and it adds its own separate markup and requires a flat fee per month.

Note that even though this model is called “interchange-plus,” the payment network’s assessment fee is charged as well.

Let’s say your retail business chooses Helcim. On each transaction, Helcim would deduct the interchange fee, the assessment fee, and its own fees of 0.30% plus $0.08.

This model is a popular choice because it’s affordable for all types of businesses and it has a transparent fee structure. On every sale, you’ll know exactly how much the card network and your credit card processor charged.

Flat rate

Payment processor

Cost per swiped retail transaction

Cost per online transaction

Monthly fee

PayPal

2.70% + $0.30

2.90% + $0.30

$0

Square

2.60% + $0.10

2.90% + $0.30

$0

Sources: Square and PayPal pricing pages.

The flat-rate model is all about simplicity. You’re charged the same rate on every transaction, which makes it easy to predict your payment processing costs (note that it’s the same rate, not the same fee, which is why this is a “flat rate” instead of a “flat fee”). And you can use this model without paying a monthly fee.

That simplicity comes at a cost, though. Under the flat-rate model, credit card fees can be much higher.

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There is one key advantage PayPal and Square offer, which is that they don’t have monthly fees. They could be more affordable if your business has very low sales volume and wouldn’t save enough in credit card transaction fees to offset the monthly cost of an interchange-plus processor.

Subscription

Payment processor

Cost per swiped retail transaction

Cost per online transaction

Monthly fee

Fattmerchant

Base costs + $0.08

Base costs + $0.15

$99

Payment Depot

Base costs + $0.07

Base costs + $0.07

$99

Sources: Fattmerchant and Payment Depot pricing pages.

With the subscription model, you sign up for a membership with the payment processor and pay a monthly fee. You’ll then pay the base costs on each transaction plus a very small payment processor fee.

You may be wondering what separates the interchange-plus and subscription models, considering their similar fee structures. In this case, it’s a difference of degrees. The subscription model has much more expensive monthly fees in exchange for much cheaper transaction fees.

This model is best suited for businesses with high sales (at least $10,000 per month). You’ll likely get the lowest credit card processing fees, and that helps justify your payment processor’s monthly fee.

Tiered

Payment processor

Cost per swiped (retail) transaction

Cost per invoiced transaction

Cost per keyed (online) transaction

Monthly fee

Intuit QuickBooks

2.4% + $0.25

2.9% + $0.25

3.4% + $0.25

$25

Source: Intuit QuickBooks pricing page.

In the tiered model, each transaction is grouped into one of the payment processor’s tiers, and each tier has a set fee amount. The payment processor determines which transactions go into which tiers, and it often bases this on a transaction’s interchange fees, which are included in the rate.

One popular setup with this type of payment processing has the following tiers: qualified, mid-qualified, and non-qualified. The qualified tier has the lowest transaction fees, followed by the mid-qualified tier, and the non-qualified tier is the most expensive.

The tiered model usually isn’t a good choice, because it tends to be more expensive than other options. Since many types of transactions are grouped into a limited number of tiers, some transactions will have much higher processing fees than they would under other pricing models.

Equipment costs

In addition to the costs above, merchants that accept in-person transactions also need equipment. Costs vary significantly depending on the merchant’s needs.

Basic mobile readers are available for $20 to $50, although some payment processors (Square included) offer one for free. Terminals and registers are more expensive, as a standard terminal can cost $150 and an advanced register can cost $1,000.

The cost of accepting credit card payments

When your business processes credit card payments, there will be multiple fees taken out of the total transaction amount. The non-negotiable credit card network fees can vary:

  • From 1.15% + $0.05 to 2.50% + $0.10 in interchange fees, although this could be as high as 3.30% + $0.10 if the client uses an American Express card.
  • From 0.13% to 0.15% in assessment fees.

The most important factors in what your business pays will be its MCC and the type of credit card the customer uses.

Next, your payment processor will take its cut, unless you’ve chosen a processor that charges one flat rate to cover all the fees in the transaction.

With credit cards growing more and more popular, the typical merchant doesn’t have much of a choice but to pay these fees to the card issuer and payment processor. By knowing how much you’ll pay on each transaction, you can price your products appropriately and ensure you’re making enough money on each sale.

Some businesses also charge a credit card convenience fee (or offer a cash discount) to cover the cost of the processing fees above.

Sources

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View more information: https://www.fool.com/the-ascent/research/average-credit-card-processing-fees-costs-america/

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